NBP hold confirms March cut was one-and-done

The NBP kept its reference rate unchanged at 3.75%, in line with expectations, but the decision still matters for PLN.

The March cut indeed looks less like the start of a new easing cycle and more like a policy misstep that has been overtaken by events. April CPI rose to 3.2% YoY from 3.0% YoY, leaving inflation close to the top of the NBP’s 1.5–3.5% tolerance band, while the Iran-driven energy shock has made the inflation outlook less benign than it looked two months ago.

That should keep the MPC in a prolonged pause, with PLN supported by rate differentials rather than by expectations of outright tightening.

We expected the NBP to hold, and we argued that April CPI would make the March cut look increasingly one-and-done. That has now been confirmed by the decision. The important point is not that the hold surprised markets; it did not. The zloty stayed stronger against the euro after the announcement. The more important signal is that the balance of policy risks has shifted.

A Council that was cutting in March now has little room to sound relaxed about inflation.

The inflation detail strengthens that point. Food inflation slowed to 1.9% YoY and fuel inflation eased only slightly to 8.4% YoY, while household energy accelerated to 4.7%. That combination means the April rise was not just a simple fuel-price story. Core inflation also appears to have picked up, suggesting that underlying price pressure is no longer moving cleanly lower. This does not yet amount to a second-round inflation problem, but it does raise the cost of dovish communication. For now, the more credible response is rhetorical tightening, as seen today: hold rates at 3.75%, push back against renewed easing expectations, and preserve optionality.

For PLN, this is constructive but not aggressively bullish. The zloty should remain supported by its yield buffer and by the removal of near-term cut expectations.

A steady NBP, firmer anti-inflation language and a delayed easing profile should limit EURPLN upside, provided regional risk sentiment holds. The main risk is a new rise in oil prices or inflation expectations, which could force markets to price a more hawkish NBP path while also weighing on regional risk appetite.

Author:

Barry van der Laan MBA, Senior FX Market Strategist

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